If you are confused as to whether or not you are an independent contractor or an employee – or whether someone working for you is an independent or a company worker – you are not alone.
A recent article in Forbes said that 53 million U.S. workers are considered freelancers or independents, which accounts for 34 percent of all workers. According to Forbes, by 2020 the percentage of freelance workers will swell to 50 percent of the workforce.
The reasons for this growth are practical. It is the age of the computer. More specifically, it is the age of the Internet, and this has splintered society in ways that were impossible years ago. For example, I worked for a company for six years recently and in all that time, I never once went to the company’s headquarters and never once met a fellow employee face-to-face. All contact was through the Internet.
To make matters more intriguing, while it looked irrevocably like I was a freelance worker working from my home, when the job abruptly ended the Labor Department ruled that I was a company employee and so therefore, entitled to unemployment benefits.
How can this be? How can a worker in his own private orbit hundreds of miles from the company offices be considered an employee of the company, rather than an independent?
Now, let’s twist the knife a little more: Not only did I work from home, never set foot in the company’s offices and got sent a 1099 tax form every year – all of which are consistent with working as a freelancer – I also signed a contract two months into my job that declared I was a freelance worker.
Still, that was all overruled by the Labor Department. And, when the ruling was made, it meant huge trouble for my former employer who owes the government taxes they never withheld, social security and workman’s compensation payments they never made – and they owed all this on my behalf and for dozens of other employees the company had misclassified along the way.
The company owes the government tens and maybe hundreds of thousands of dollars.
Looking at a knowledgeable source, Flexjobs.com lists the most popular current freelance jobs including marketing consultant, project manager, Web site developer, writer, accountant, insurance appraiser, teacher, social media manager, graphics designer and administrative assistants. But the ramifications also apply to any other job that is done by contract, from construction workers who have their own tools and sign contracts to work project to project, to photographers who go wedding to wedding to make their living.
You can see where the money adds up. Does a construction worker pay for his or her own insurance or does the company? Does a wedding photographer contribute to workman’s compensation? After all, even wedding photographers can get hurt on the job.
While it seems odd, the litmus test for determining whether or not you are a freelance worker or an employee is simply this: If it looks like a duck and walks like a duck, it is probably a duck. That means, having feathers or webbed feet or walking with a waddle do not define the issue. In other words, no one factor declares it is a duck. You could have feathers, waddle and have webbed feet and not be a duck at all.
In more legal terms, here is the phrasing of the same idea in the judgment of my case: “The determination ’is a question of fact: No one factor [is] determinative; and an employment relationship [can] be found even if the other evidence in the record [supports] a contrary conclusion.’”
Take for example, the issue of the contract. I had signed a contract that said in plain English that I was an independent contractor – a freelance worker. But that didn’t hold up. Why? Well, in plain English, because contracts can get it wrong. It is the Labor Department’s judgment to make and they determined that contract or no, my job more resembled an employee than it did an independent worker.
With regards to the contract: Face it, employers have a ton of economic incentive to calling you an independent contractor. They avoid withholding taxes, paying unemployment insurance and workman’s compensation and social security. They also don’t hire the office staff needed to sort all that stuff out each pay period. So, they are hungry to send contracts to workers they classify incorrectly, because to do so saves them a lot of money.
Try this litmus test: Imagine yourself not as a person, but as a company. Ask yourself who pays for the equipment, the training, the office space, the insurance. These are not definitive factors, but they contribute to the overall picture.
If you are a writer and you work for yourself, you generally carry liability insurance in case you get sued because your writing crosses a line -- is offensive or inaccurate for some reason. That implies you work for yourself, because it is the company that takes the risk in work situations.
If you are a contractor, do you carry the insurance or does someone else? That helps define whether or not you are your own company or an employee of another company.
The insurance question, however, demonstrates how one factor does not provide a definitive answer. The construction trades often include projects in which there is a main contractor and several sub-contractors, which involve some of the jobs the contractor would rather have farmed out to a specialist, like the plumbing, electricity or the roofing on a home build.
But who carries the insurance?
You can always shop around and buy insurance, but does that alone make you a company? Probably not. If you were a sub contractor, you might start by asking the main contractor whether or not they carry insurance that covers your work. If you’re unsure as to the answers of all of these questions, check this site out to find out what your own liabilities might be.